Kering’s Annual Report and Some Thoughts on Volcom’s Role.

Kering, the owner of Volcom and Electric, presented its annual results for 2014 last week and held the usual conference call. As regular readers know, I was impressed at the job Volcom did selling itself to Kering (then PPR) both in terms of the price they achieved and their timing. The deal happened almost four years ago.

Following the acquisition, I chronicled (as best I could given the limited information Kering provided on the separate performance of Volcom and Electric) what I’d call some apparent difficulties with integration and performance by the brands that I thought didn’t live up to Kering’s expectations given the price they paid ($607 million). It felt a little like Deckers’ purchase of Sanuk.

As the old saying goes, it’s easy to buy a company- not quite so easy to integrate it. Maybe it’s not that old. Anyway, after an apparent period of adjustment and figuring out each other’s culture, it seems like things are working better. I’ve had the privilege, if you want to call it that, of having to do business in another language (which I had to learn) and culture. It’s not something to be taken for granted.

I think Kering bought Volcom for all the right reasons.  They needed its culture, its attitude, its credibility and access to its market. But Kering’s 2014 revenues were about $11.4 billion at the current exchange rate. Volcom and Electric together did around $290 million, or 2.54% of Kering’s total. That’s up about 4% as reported from 2013. They had a “recurring” operating profit of $11.4 million.

Meanwhile, Kering continued, for obvious reasons, to be focused on its luxury brands from which it gets two-thirds of its revenue and on turning around Puma. Kering’s Sport and Lifestyle segment, which includes Volcom and Electric, had 2014 revenues of about $3.7 billion. $3.4 billion of that is Puma. Puma’s recurring operating income, whatever recurring means, fell from $219 million in 2013 to $146 million in 2014 so there is some turning around to do.

Symbolically at least, I felt like a turning point came when Volcom changed its mantra from “Youth Against Establishment” to “True to This.” I know, I know, I’m reading way too much into that. Could be. But, continuing to read way too much into it, “True to This” feels way more integrateable into Kering than “Youth Against Establishment” ever was. In the conference call, management talked about the “promising repositioning” of Volcom and Electric.

I was also impressed by Kering’s general discussion of their initiatives. Probably least importantly, they talked about a new strategic initiative in eyewear. Given their luxury brands (Gucci, Saint Laurent, Bottega Veneta, others) that just kind of makes sense.

They spent quite a bit of time acknowledging the need for more digital focus, modernizing and optimizing their information systems, and a shared services model that includes improved supply chain management. That’s not much different from what a lot of other large multi brand companies are doing, but it’s important. Specifically with Gucci, they talked about controlling their distribution better. You know I love that.

An interesting issue is how you sell high end luxury brands on line. I don’t know if it’s different or not, but I imagine Kering is spending some time thinking about it.

There was a comment made about the luxury market being in flux, and that there were new consumers in that market. They weren’t precise as to what they meant, but it seems like an issue Volcom is meant to help them address.

When Kering acquired Volcom, I wondered out loud and half in jest if some Volcom branded product might end up in some high end boutiques. Depending on just what Kering means about the luxury market being in flux and new consumers, maybe it wasn’t a completely crazy thought. I hope Volcom is deeply involved to help Kering evaluate the changing market and new customers.